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Northrop Grumman Wins $153M Hawkeye Aircraft Deal From Japan

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Northrop Grumman Corp.’s (NOC - Free Report) subsidiary, Northrop Grumman Systems Corp., recently secured a $153.2-million modification contract for the delivery of a single E-2D Advanced Hawkeye Aircraft for the Government of Japan. The contract was awarded by the Naval Air Systems Command, Patuxent River, MI.

Details of the Deal

Work related to the deal will be performed in St. Augustine, FL; Syracuse, NY; Melbourne, FL; Indianapolis, IN; Aire-sur-l'Adour, France and various other locations across the United States. It is expected to complete in March 2020.

Importance of E-2D Advanced Hawkeye Aircraft in Japan

As Japan looked to strengthening its Air Force arsenal, in 2014, the Japan Air Self Defense Force (JASDF) opted for THE E-2D Advanced Hawkeye to fulfill the nation’s Airborne Early Warning and Control (AEW&C) requirements. This advanced weaponry was selected as it featured the powerful AN/APY-9 radar, designed to provide 360° coverage against hostile aircraft and cruise missiles.

In November 2017, the first flight of Japan’s E-2D Advanced Hawkeye was successfully executed. This was a significant milestone in delivering advanced airborne early warning and surveillance capabilities to the Japan Air Self Defense Force (JASDF). Consequently, the procurement of the latest deal would strengthen Northrop’s commercial relationship with the country as well as strengthen Japan’s ability to meet the evolving security and intelligence needs.

Northrop’s International Sales

Northrop Grumman, being one of the major defense companies in the United States, enjoys heavy inflow of international orders for its varied products. Notably, the company had international sales of $870 million in the first quarter of 2018, which also included Foreign Military Sales, reflecting 12.9% of total overseas sales made by the company.

Northrop Grumman Prospects

Northrop Grumman’s Aerospace Systems (AS) unit, which develops and designs military aviation aircraft, manned aircraft, autonomous systems and spacecraft, witnessed a successful first quarter in terms of sales, primarily led by higher volumes on manned aircraft.

Notably, the company’s Aerospace Systems unit reported first-quarter 2018 revenues of $3.28 billion that increased 9.9% year over year. We believe the latest contract, along with the other notable ones which the company won in recent times, will allow its Aerospace Systems unit to reflect similar solid results in the upcoming quarters as well.

Recently, the company acquired rocket and missile maker Orbital ATK for $9.2 billion. This strategic buyout will enable Northrop Grumman to enhance its product portfolio and capability in manufacturing technologically advanced combat platforms. It will also benefit from the Orbital ATK’S knowledge and expertise in satellites, spacecraft components and commercial space-launch systems. Moreover, the acquisition will lead to strong combined cash flow generation that will further support financial flexibility going forward.

Furthermore, President Trump proposed the fiscal 2019 defense budget in February that provisioned major war fighting investments of $21.7 billion for aircraft. Such inclusions reflect solid growth prospects for AS segment, which in turn, are likely to boost the company’s profit margin.

Price Performance

Shares of Northrop Grumman have rallied about 32% in the past year compared with the broader industry’s gain of 42.9%. The underperformance may have been caused by the intense competition that the company faces in both domestic and international markets.

Zacks Rank & Key Picks    

Northrop Grumman carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are AeroVironment, Inc. (AVAV - Free Report) , The Boeing Company (BA - Free Report) and Wesco Aircraft Holdings, Inc. (WAIR - Free Report) .

While AeroVironment sports a Zacks Rank #1 (Strong Buy), The Boeing Company and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment delivered an average positive earnings surprise of 147.43% in the last four quarters. The company’s long-term growth rate is pegged at 20%.

The Boeing Company came up with an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.98% to $14.61 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.

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